Days like today really hurt my credibilty when I try to tell people that the stock market is intelligible.
Two huge global banks, Citigroup (C) and UBS (UBS), gave us some insight into what to expect when they report 3rd quarter earnings – and it wasn’t pretty.
In their 3rd quarter, Citigroup announced that it will (Press Release):
- Write down $1.4 billion on its LBO commitments
- Write down $1.3 billion on its CDOs and CLOs
- Show an increase of $2.6 billion compared to last year’s 3rd quarter for credit losses and increased loan loss reserves
- Show a loss of around $600 million in fixed income trading
So we’re talking about a $6 billion house of pain.
Wall Street’s reaction? Citigroup’s stock was up 2.25%, tacking on more than $5 billion to its market value.
Similar story for UBS. UBS announced that it will mark down its holdings of US subprime mortgage backed securities to the tune of about 4 billion swiss francs (about $3.4 billion US Dollars). This will result in the first quarterly loss at the firm in 9 years (Press Release).
Wall Street’s reaction? It sent UBS (UBS) up 3.17%, tacking on $3.5 billion to its market value.
On the back of this good news (wink wink), the whole stock market shot upward including a new all time high for the Dow. Here’s the breakdown:
Dow: +192 (1.38%) to 14,088
S&P: +20 (1.33%) to 1547 (1553 is the all time closing high set on July 19)
UPDATE (Tue 10/2, 1:00pm PST): The Wall Street Journal had a similar take on yesterday’s action with a front page article titled “Dow Hits Record Despite Losses At Big Banks” (subscription required).